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Intel Reorganization

Written By: R. Krause
Published On: May 12 2000

Intel Reorganization
R. Krause - May 12, 2000

Event Summary

In April Intel Corporation announced it will merge its Architecture Business and Microprocessor Products groups into a new division.

Pat Gelsinger, discussed the changes in an interview following his keynote address at Windows Hardware Engineering Conference (WinHEC) in New Orleans.

With the reorganization, Pat Gelsinger, vice president and general manager of Intel's desktop products group, will assume the title of chief technology officer and will oversee product implementations across all business groups. Intel said it would release further details of the reorganization later.

"We've been seeing the need for these actions for a while," he said. "We've been orienting our programs more to delivering solutions, put in place the processes to better communicate with our customers and align our roadmaps. We've been addressing those issues through incremental process and organizational improvement. I think it now became very clear that this is the way of the future."

Intel has been unable to produce sufficient supply to match the demands of its major customers, especially for the Celeron and Pentium III processors. In February, Intel said it was ramping up its production and predicted it would be able to meet supply needs by the end of the first quarter, but early in April company officials pushed back that timetable to June.

Intel has blamed the problems on a combination of unexpectedly high demand and lousy forecasting by industry analysts. Other analysts also believe Intel's efforts to become a networking powerhouse have contributed to its taking its eye off the ball.

Market Impact

Given all the apparent missteps Intel has made in the last year, we expected something like this to happen - we just expected it sooner. Intel still has 80+% of the market, to AMD's 17%, but AMD's string of successes has got to be making Intel CEO Craig Barrett a little nervous. Reorganizations typically mean that a company spends six to nine months trying to get their "ducks in a row" - getting everyone marching in the same direction - and we do not expect Intel to be any different. Advanced Micro Devices CEO Jerry Sanders must be loving this, but we do not expect him (nor AMD) to rest.

Looking at the overall market, we do not expect this move to increase market growth. Any growth in markets that occurs will be due to external-to-Intel market forces. We expect AMD to increase their market share at Intel's expense. Market consolidation is not an issue, because there are only two players left.

User Recommendations

Intel loyalists should be (tentatively) happy about this announcement, because it means that Intel has finally started moving to remedy whatever problems might be present. There will probably still be some firefighting, but we expect that to diminish over time.

We expect this announcement to affect other users in a key way. Many of Intel's recent problems have been related to undercapacity, i.e., the inability to meet the demands of the marketplace. Although many companies would love to have this problem (vs. lots of supply and no demand), Intel's reputation and business has suffered because they apparently just didn't plan well enough to have a contingency plan ready to roll. We expect undercapacity to be an issue for a few months longer, and the reorganization will exacerbate this. This means the bigger customers will probably pull strings to get their needs met, and so smaller customers will get squeezed.

Customers may want to verify that Intel's capacity problems will not affect their orders. If there is a negative affect, they may want to consider other alternatives.

 
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